Editor's Column: It's a Mad Mad Mad Mad Credit Union World

I was galled at the childishness of bankers in Vermont putting the regulator up to blocking a credit union from using the term “banking” in its marketing materials, and the state regulator for his, at best, naiveté. Readers had the same reaction as you can see from the comments posted on our website, such as “What is next, blood banks and food banks?”

Setting aside the First Amendment argument, the term banking is a verb describing credit unions’ very business. To ban them from using it under the pretense that it might confuse consumers as to the business they’re in would only serve to confuse consumers more. Credit unions use the term to educate consumers about their business.

Sadly, this is not a first. Based on a 2004 NCUA legal opinion letter, a federal credit union sought an opinion on whether it could be held to the state regulator’s ban on the term banking other than by banks. Aside from federal preemption in this area, the letter also reasons, “Minnesota law defines the business of ‘banking’ in generic terms to include the acceptance of deposits of money or currency and the making of loans. MINN. STAT. ANN. §47.02 (West 2002). These activities are fundamental to the operation of a credit union, and a literal application of this language to an FCU would prohibit it from functioning.”

According to the Vermont regulator’s cease and desist, the credit union used it both as a verb and as a participle adjective (say that three times fast), as in “not for profit banking cooperative.” It also cites the state law as banning the use of “banking association” and similar forms.

The credit union is not out to deceive the consumer. That’s apparent. The idea that the credit union is authorized by the state to perform the business of banking but not state it is insane. Something to think about the next time you ask for a Kleenex.

CUSO Reg

The NCUA board meeting agenda carried some pretty hefty items, including a proposed changes to the definition of a troubled credit union and the corporate assessment. What’s more notable is the omission of a final CUSO regulation–again.

Finalizing the reg has hit a couple of speed bumps, not the least of which is the legality of the NCUA overseeing CUSOs. Congress specifically did not extend the NCUA’s temporary third-party vendor oversight after Y2K. No doubt legal challenges would be asserted, and with the agency’s losing streak of the last decade–the 2008 Members 1st FCU FOM case, the Tooele FCU FOM case in 2004, and the infamous fold in the then-Community CU’s bank charter conversion in 2005–another possible loss would further harm its credibility.

In addition, the expense would have been enormous. It’s something a potential Republican chairman in an election season might consider after three consecutive years of budget increases.

The NCUA can use its existing authorities to ensure third-party vendor due diligence and investigate a credit union’s investments, Carrie Hunt of NAFCU said. Credit unions are also extremely limited in their CUSO investments and lending. No need to pile on and the trade associations are breathing a sigh of relief because they’re busy enough.

NCUA Board

The trade associations and credit unions want good people in at the NCUA, and with Gigi Hyland’s seat expired and Michael Fryzel’s coming up next year, now is the time to cautiously get moving behind the scenes even though credit unions are not necessarily anxious to see these two leave. CUNA’s Mary Dunn pointed out, “This election may have a greater impact on the NCUA than we’ve seen in a long time.”

After years of economic chaos and, to a certain extent, knee-jerk regulating, a Republican administration could mean much more than ever before. First, rules such as the CUSO reg and loan participations could go away for good—not to mention the CFPB.

The trades are concerned the bankers will make hay of an industry-backed candidate getting the slot. With all of the former bankers overseeing banks, including two sitting FDIC board members, credit unions should not worry. And who can forget former FDIC Chairman Don Powell, who regularly advocated for the taxation of credit unions while serving as chief of the banks’ insurance fund.

I don’t fault the banking agencies for that either. Banking regulators require certain expertise that’s often found in the banking industry. Credit unions are an even more specialized industry.

On the flip side, the industry could back someone, and they don’t get the job. How would the new board member respond?

And face it, serving on the NCUA board does not have the same prestige that the FDIC board has so you’re not going to attract the academics. The one credit union person on the board limit is ridiculous, though in today’s HSBC-JPMorgan faulty oversight environment, it’s probably not the right time to advocate lifting this requirement. But who else is left to serve on the NCUA board other than industry professionals and aspiring politicians?